Cloud Computing: How to Craft a Smart Chargeback Strategy

Cloud provides businesses with a great opportunity to get their strategic approach to IT funding in order, says Mark Settle, CIO at BMC Software. Here's his advice on building the right chargeback strategy for your business.

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While the cloud is certainly not the IT industry's first attempt to harness cheap commodity computing power "on the fly," the hype around it has been fuelled
by the high levels of uncertainty prevailing over the slow recovery of the economic climate.

In this context, for all the promise cloud computing offers to reduce capital expenditure and management burden, while increasing speed of response
and ability for IT to flex and scale with business demands, it also reignites the knotty issues of IT chargebacks — an approach to IT funding that, due
to its complexity, was in the past somewhat of a recurring nightmare for CFOs and CIOs.

Shifts in Responsibility

IT budgets can be assigned by business unit, project or overall annual requirements. But cloud computing, as a centralized IT resource charged on a
usage-based billing model, blurs traditional budgetary lines, reviving the concept of the IT function charging its costs back to individual departments. Despite
the daunting challenge of developing a costing model and socializing this new financial agreement throughout an organization, IT chargeback methods are
just as important as architecture, support or lifecycle considerations when building a cloud.

In the past chargebacks have been difficult to implement, as calculating the full cost of service delivery is an extremely complex process due the range
of variables associated with it. With cloud computing, organizations can build flexible IT resourcing into their operational expenditure for managing cheaper,
sustained and predictable business workloads. At the same time, they can access extra resources on-the-fly when a business unit needs it, to get a new
project up and running quickly for example, without having to factor in the extra hardware, power, maintenance and labor costs usually associated with new
IT capital expenditure.

Putting IT in Control

On the face of it, the fact that cloud computing is fundamentally based on a chargeback model would seem to put the CIO firmly in control of IT as a
central business resource and enable him to alleviate some of the pressure on the CFO. Reducing capital expenditure is almost always a good thing, but
decentralized, tangible resources allow for more traditional, consistent and obvious budget and resource division. Problems can arise when a department
queries their share of the cloud services budget in comparison to other departments or as a proportion of the IT bill to the business overall. While the
benefit of a flexible environment is to address peaks and valleys in usage, these patterns can also engender concern about how costs are allocated between
different groups.

This is why it is essential that any CIO considering a move to cloud computing must work with the CFO to agree on standard procedures upfront for
procuring, accessing and monitoring cloud resources and service levels to ensure each business unit only pays for the IT they need and use.
Private clouds, at first glance, seem as though they'd be reasonably straightforward chargeback environments. However, questions of ownership still do
manifest themselves, namely: What department should pay for the operating, support and maintenance expenses linked to the cloud? The answer is that all
departments partaking should own a part of the operating expenses.

Unlike in a public cloud governed by a third party, in a private cloud direct application usage expenses are not the only cost that must be issued as a
chargeback to an IT department. Thus, the additional costs must be split based on fair usage statistics. The good news is that this is a fairly simple
proportion to figure out when given the right tracking information; the difficult part is finding the appropriate management systems to monitor and control
usage of the private cloud.